Impact of ASEAN Free Trade Agreement (AFTA) on Region’s Procurement
ASEAN Free Trade Agreement (AFTA) is an intergovernmental agreement signed by ASEAN (Association of Southeast Asian Nations: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) on 28 January 1992 in Singapore. AFTA through the Common Effective Preferential Tariff scheme intends to increase the region’s value as a production base for the world market.
AFTA’s goodwill aims to benefit ASEAN countries by
- eliminating tariffs that help in reducing price of products manufactured by ASEAN
- helping products manufactured by ASEAN countries access its regional market (580 million in population, $1.5 trillion in GDP, international trade worth $1.7 trillion/year and foreign investment of $60)
- helping buyers benefit from low product pricing resulting from lower tariff on raw materials
- helping manufacturers import raw materials without overhead tariff charges
- integrating all participating countries into a single market that can thrive stronger and larger with its high population
- -helping both export and investment sectors benefit in the long run
From Procurement point of view, a study by Bain & Company reveals that in the Asia-Pacific region, despite procurement representing 80% of overall costs (automobiles, textiles, electronics etc.), procurement executives aren’t very satisfied with the capabilities they have at hand. Domestic companies and multinationals that thrive on the region’s production, now realize this increased pressure for improving their procurement practices.
Now the question for you is if you are able to leverage the maximum of this free trading zone? How are you extracting the benefits brought by AFTA to the advantage of your sourcing and supplier management? The pursuit of world-class procurement is critical and all 4th generation procurement companies that desire to adapt best practices and have seamless access to centralized information from around the globe, should now leverage automation. Automation of supplier performance and information management is the key to sustainable buyer-supplier relationships. Incorporating a 360-degree supplier performance measurement tool with built-in collaboration and risk mitigation features is the need of the hour. In this regard, you should also consider a centralized on-boarding and management of supplier information for data that is clean, consistent and policy compliant.
After supplier performance management, another key area is eSourcing which is an intuitive, web-based RFX management tool that facilitates data-driven sourcing events. If you already have an existing ERP, you can go for standalone enhancements but integration being an often concern, getting an entire Source-to-Pay suite with advanced features—configurable, easy-to-use, and programmable to host scalable sourcing events for both simple and complex categories, is always highly recommended. This helps keep in check quality concerns that infest major productions by Asian countries when compared to Europe and other well-developed nations.
The ask is to make the most of it while the sun shines. As a smart business organization operating in ASEAN countries, make the most of the regulations relaxed by AFTA. It is known that south Asian consumers are very demanding and brand loyalty is very hard to cultivate. Any kind of complacency in the production part owing to poor sourcing or troubled relationships with raw-material suppliers can redirect potent businesses to massive losses and then gaining the former stature despite all tariff relaxations won’t be easy. Whether you are a domestic (in the sense you are exporting from an ASEAN country to a non-ASEAN country) or a multinational, by all means you have to adhere to the requirement of global quality standardization. So, source better and manage better to rapidly scale up as a global leader from an AFTA regulated region.